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How The CARES Act Became A Tax-Break Bonanza For The Rich, Explained


This is FRESH AIR. I'm Terry Gross. As small businesses and individuals struggle to obtain federal aid, the wealthiest are poised to reap tens of billions of dollars in tax savings. The economic rescue package that became law last month is giving $174 billion in temporary tax breaks. They're intended to help small businesses. But they're going overwhelmingly to rich individuals and large companies.

President Trump and his son-in-law, Jared Kushner, will likely benefit from these tax breaks. This is what my guest, Jesse Drucker, reports in The New York Times. He's an investigative reporter for The Times' business desk. He's been reporting on several of the Trump administration's tax and economic programs.

Jesse Drucker, welcome back to FRESH AIR. How are you? I know you live in New York City, which is the hotspot for the virus. So how are you doing?

JESSE DRUCKER: We're hanging in, you know? It's a stressful time. But we're all OK.

GROSS: Good. You've been writing about the tax breaks within the stimulus package. What are they officially supposed to achieve? Who is supposed to benefit from them?

DRUCKER: Well, so a couple days ago, Senator Charles Grassley, who is the Republican chairman of the Senate Finance Committee, which is the Senate's tax-writing committee, he said the first and only goal of the CARES Act tax relief was to help families dealing with stay-home orders and to help businesses keep going so workers would have jobs to come back to when it is safe to do so. You know, that's how it's been framed.

But if you spend a little time digging into some of the provisions, you can actually see that there are some provisions in the stimulus bill that were geared towards big companies and wealthy individuals - tax breaks that only affect wealthy individuals and some tax breaks that only are going to affect big companies, and in some cases, companies that may not have been affected or may not be affected at all by the pandemic.

GROSS: Can you give us an example?

DRUCKER: The single biggest tax break that is going to help only wealthy people is something that will cost the government $135 billion. And this is a provision that will help people who own their businesses through partnerships or other similar structures who may have generated losses on their tax returns from their businesses, which - this gets extremely complicated. But just because they have losses for tax purposes, doesn't necessarily mean they have a money-losing company. They could, actually, potentially, have a very profitable company.

But the provision will allow them to use those losses to offset the taxes they might owe on, say, gains they have in the stock market separately. Now, this is a benefit that exists for Americans currently, prior to the CARES Act. But it was capped and did not benefit people who made more than half a million dollars. And now they have uncapped that restriction temporarily as part of the CARES Act.

And so as a result, the only people that are going to benefit from this tax change are people that make at least half a million dollars in income outside of their businesses. And just to put that in context, that is literally the top 1% of U.S. taxpayers. So in other words, the government, in the CARES act, is going to give out $135 billion in tax relief only to people that make at least half a million dollars, only to the top 1% of taxpayers in this country.

GROSS: Give us another example that only benefits people or companies that have a lot of money.

DRUCKER: So another example is there is a restriction on how much interest companies can deduct from their tax returns. And that restriction only applies to companies that have at least $25 million a year in receipts. And again, that restriction is going to be lifted temporarily so that companies with at least $25 million in revenue are going to be able to maximize their interest deductions. This particular restriction is something that has been lobbied on for the last couple of years by different companies who were seeking favorable regulations in the Treasury Department.

What they ended up getting here was not exactly what they were seeking. But it's the same restriction that they were hoping to loosen up. This is of particular interest to the private equity industry, which accumulates a lot of debt in order to make acquisitions. And so the ability to deduct even more interest on that debt could be very beneficial for them.

GROSS: So you point out in your article that the Trump family business and Jared Kushner's family's business are likely to benefit from the tax breaks in this new stimulus package. How are their companies likely to benefit?

DRUCKER: Because one of the provisions that they put in the CARES Act is a provision that allows business owners to use losses from their business and use that to offset the tax bills they might have from, say, selling stock on the stock market. And the reason that that's potentially particularly beneficial for the real estate industry is that the concept of losses on your tax return is very complicated. It sounds like, oh, that's someone who's losing money. So they take a deduction as a result of those losses. That's not really how it works.

In real estate, you can actually have, in the real world, what is quite a profitable business that generates losses on tax returns because real estate developers get to write down the value of their buildings. That turns into a deduction. And the result is that people like Jared Kushner and Donald Trump - to the degree that we have had some insight into their taxes over the last few years, we have seen that they have reported big losses on their tax returns. In many cases, it's almost certainly the result of some of these favorable provisions that let them write down the value of their buildings.

So the point is is that any tax law change you make that gives people the ability to make maximum use of their losses is something that could very easily benefit real estate investors because they have so many losses. And in the case of Jared Kushner and Donald Trump, we don't have to speculate on that. We know that in previous years, they have reported big losses, which would put them in a position to benefit from this.

GROSS: So are the wealthy people and large companies who are benefiting from this new stimulus package, which is designed to help people and businesses during the pandemic, do they have to prove in any way that they're suffering as a result of the pandemic?

DRUCKER: Oh, no. Not at all. I mean, one of the other provisions that is benefit - will benefit big companies is - or has the potential to benefit big companies is another provision that allows companies to make use of their losses and, essentially, roll them back. So for instance, if you report a loss in 2019 and you have profits in 2018, the stimulus act would let you file an amended tax return now and use the losses from one year against another year and get a refund.

The thing about that provision is that - I guess the theory is that this is a way to get cash into the hands of companies immediately so they don't have to lay people off. But it has, potentially, nothing to do at all with whether you've suffered from the pandemic. The fact that a company might have reported a loss on its tax return in 2019 or 2018 - just a matter of common sense. You can see those years pre-date the pandemic. But we've created a provision that will clearly benefit companies that may not be hurt at all by the pandemic.

GROSS: So you report that some of the tax cut provisions in the new stimulus bill - and the stimulus bill is designed to help companies and individuals suffering as a result of the pandemic. But you report that some of the cuts in here for wealthy individuals and rich corporations, these were cuts that were being lobbied for for a couple of years - ever since the 2017 tax cut package that was passed.

And some corporations, lobbyists didn't want those restrictions. They've been working against those restrictions ever since. So do you see this current stimulus package as a kind of opportunity just to give lobbyists and corporations what they've been asking for for a couple of years under the cover of the pandemic?

DRUCKER: If you go back just over two years, the end of 2017, the Republicans in Congress passed, really, kind of landmark tax legislation, which was then signed by President Trump, that was very beneficial, you know, that handed out basically trillions of dollars in tax cuts to big companies and to wealthy individuals. And to some degree, those trillions of dollars in tax cuts were offset, in part, by some new restrictions and new taxes that the Congress put in place.

What we've seen since then is that some of the new taxes that Congress passed to offset some of the big tax cuts that companies were given - that in reality, what is happening is those taxes have been undercut by regulations that have been slowly coming out of the Treasury Department. And now what we're having is, in the CARES Act, as part of a relief package to help companies and people hit by the pandemic, even more of the restrictions that were put in place in 2017 are kind of being whittled away.

And so it's almost like you kind of have this sort of gradual process over the last two years where you gave corporate America and wealthy individuals some big tax cuts. In exchange, there had to be some stuff to offset those cuts. And those offsets have been gradually whittled away by the Treasury Department through the regulatory process over the last couple of years. And now we're seeing even more of those restrictions being eroded in the stimulus package. So the tax cuts, which were once offset by some new taxes and some new restrictions, are gradually being whittled away so that it is potentially going to be only benefits for big companies and wealthy individuals.

GROSS: Let's take a short break here. And then we'll talk some more. If you're just joining us, my guest is Jesse Drucker, an investigative reporter at The New York Times' business desk. We'll talk more after we take a short break. This is FRESH AIR.


GROSS: This is FRESH AIR. My guest is Jesse Drucker, an investigative business reporter at The New York Times. His latest articles are about the economic stimulus package that's supposed to help small businesses and other people struggling during the pandemic. But it's turned out to be a tax break bonanza for the rich.

One of the concerns that a lot of people had about this stimulus package that's, like, trillions of dollars is that - will there be oversight? Will it be going to the wrong people? Will it be used appropriately? And President Trump signed an executive order basically saying that he would, basically, ignore the oversight component that was written into the legislation. And he said that, in his opinion, it violates his executive power constitutionally. So what kind of oversight are we left with?

DRUCKER: Well, I mean, the reality is, in the form of the tax breaks, there's really no ability to see who's getting it - right? - because, I mean, companies' tax returns and peoples' tax returns are, obviously, private. So there's no ability to see precisely which companies and individuals are going to benefit from those tax breaks. On the - there's a big Small Business Administration loan program. And there, we actually have gotten a lot of insight into that because a fair number of publicly traded companies and general companies that no one has ever heard of have applied for and gotten loans through that program.

And so what we've seen there is a program that I think most people assumed was geared towards, you know, the grocery store or the restaurant or the dry cleaner around the corner that is at severe risk of going out of business. The companies that are getting those loans are actually pretty big companies with existing relationships with big banks. I mean, one of the complications here is that the government is administering this loan program through banks. And so banks are dealing with the people that were already their existing corporate customers.

And so you can see pretty sizable companies, you know, not the types of companies that I think people imagined when we heard about, you know, lifelines for small businesses. We see pretty sizable companies - like Shake Shack was kind of the most notorious one - getting these big loans that are, essentially, underwritten by the government. You know, we spent some time looking at the public filings of companies that disclose these loans. And you see companies that are paying millions of dollars to their executives are getting millions of dollars in loans. Or companies that have paid multimillion-dollar fines to the Justice Department are now getting multimillion-dollar loans, basically, subsidized by the government.

GROSS: Do you think that that's just, like, an oversight, like, a mistake that happened when the bill was being written? Or do you think that was intentionally baked into the bill?

DRUCKER: You know, I'm not sure I can really speak to that with respect to the loans, frankly. I mean, obviously, this is a very complicated task to get done in a hurry. And it's both hard to figure out kind of what restrictions to place, and it's also very difficult to figure out, I think, for the government, just the mechanism for getting money to people, in some cases. And so going through banks, you can see why that would be an appealing way to do it. You know, as far as the Shake Shacks of the world getting loans, I don't - I can't really speak to whether Congress thought that was a good idea when they passed the legislation.

With respect to some of the tax cuts - the thing that's so interesting about that is that some of the tax cuts we're talking about here are things that had basically been on the kind of corporate lobbyist wish list for some time. And so I think what happens is, when there's a crisis like this, there's a kind of fairly narrow menu of what Congress is going to choose from. And it's a menu that is, in large part, been shaped by years of corporate lobbying, right? It's no - I don't think it's any accident that these provisions that we're talking about are things that have been, in some form, on the wish list of lobbyists for years.

You know, and in some cases, actually, you know, there are cases where companies - and we wrote a story a few weeks ago about how Adidas and Adidas lobbyists wrote an email to staffers in Congress trying to get a tax break, get people - let people use pre-tax money for their gym memberships. And this is something that Adidas had been pushing for for years. But kind of under the cover of the pandemic, they thought this would be a good time to try this again. They did not - they were not successful in doing that. But I think that's the kind of most visible example of how some of the tax breaks that did make it into the legislation were things that were basically on the agenda for years, and this was the opportunity to make them happen.

GROSS: One of the issues here is - at a time when the government is spending trillions in tax relief in the hopes of, like, preserving what's left of the economy and then stimulating the economy when we start to reopen - by cutting so much in taxes from the wealthy and from really big corporations, are we gutting the finances of the government more than we need to? Are we putting the government more in debt than we need to?

DRUCKER: Obviously, we have sort of an unprecedented economic catastrophe that's unfolding before our eyes. And in theory, the government - I mean, the government could, in theory, have an unlimited ability to deal with some aspects of that, you know, to prevent people from going hungry and keep money in people's wallets so they can continue to pay their rent and continue to feed their families.

But if you view the amount of money that you have to dole out as limited, then clearly, if you are giving $170 billion in tax cuts to wealthy people and big companies that potentially aren't hurt by the pandemic or may not need it, then that leaves you with two potential problems, right? One is that that's money that may not be there for the government, which, you know, kind of, at this moment, we see kind of how government is important. Or it's money that cannot be used for tax relief or other direct relief for other groups that might be more directly affected by the pandemic.

GROSS: Is there an economic theory underlying how - like, who's getting the tax cuts and why? Like, for example, during the Reagan administration, whether you believe this to be true or not, there was, like, what was called Reaganomics or trickle-down, which was that, you know, if you gave a lot of money to, like, wealthy corporations, to big businesses, the money would trickle down to the employees, and everything would be good for the people who aren't wealthy 'cause the money would ultimately come to them, and that would stimulate the economy, et cetera.

Is there any kind of theory that we're hearing now to explain the tax cuts to people who are making a lot of money?

DRUCKER: I'm not aware of any real theory as to why the particular tax breaks that we've been talking about were in there. Like, I'm not - the theory behind, say, net operating losses or freeing up the restrictions on net operating losses is that it just will get - it has the potential to get money out into the economy very quickly. The counterargument is that it's - why would you target those particular companies when they may not even have been hurt by the pandemic? I'm not aware of any real theory for targeting any of these industries or any of the groups that are going to be affected by these, other than the kind of broad goal of, let's get as much money flowing into the economy as possible.

GROSS: You've described some of these tax breaks for big business and wealthy individuals in the current stimulus package as being the result of lobbyists who are still trying to undo some of the restrictions from the 2017 tax stimulus bill that already gave a lot of tax breaks to the wealthy. So how do the tax lobbyists manage to get these kinds of restrictions in? Like, how do they operate? And is there anybody lobbying on the other side?

DRUCKER: So it's a really interesting and important question you're asking them. And I think that one of the things that is quite extraordinary about a lot of these tax provisions is that they are really only understood by a very small number of lobbyists and tax attorneys and accountants and are probably not very well understood not just by members of Congress but even the congressional staffers who are working on them. And so you basically have kind of giant components of economic policy and policy that's responsible for how wealth gets distributed in this country that is really driven by, ultimately, a very small number of people through provisions that are indecipherable, I think, to most Americans.

The analogy that I always like to make is if you look at, you know, say, the environment, you know, on the one side you may have energy companies and the other side you may have Greenpeace and the Sierra Club, but there really isn't anything like that. There is no real public interest lobby on these kind of obscure corporate tax provisions. And you can really see it playing out both in the regulations over the last couple of years in the Treasury Department and even in these kind of highly complicated provisions in the stimulus package. These are things that are driven by and really only understood by a very small number of tax lobbyists.

GROSS: Well, Jesse Drucker, thank you very much for talking with us. And stay well.

DRUCKER: Thank you, Terry.

GROSS: Jesse Drucker is an investigative business reporter for The New York Times.


GROSS: After we take a short break, we change the mood with some great music performed for us by guitarist Stephane Wrembel and his trio. Their music is inspired by the recordings Django Reinhardt and the Quintette of the Hot Club of France made in the '30s and '40s. I'm Terry Gross, and this is FRESH AIR.


Combine an intelligent interviewer with a roster of guests that, according to the Chicago Tribune, would be prized by any talk-show host, and you're bound to get an interesting conversation. Fresh Air interviews, though, are in a category by themselves, distinguished by the unique approach of host and executive producer Terry Gross. "A remarkable blend of empathy and warmth, genuine curiosity and sharp intelligence," says the San Francisco Chronicle.